Contract Compliance and Strategic Sourcing
Compliance is one of the essential pieces of procurement management. It’s important to ensure that your vendors meet your company’s standards regarding all contracts and purchase orders. Contract sourcing and strategic sourcing are two different strategies that ensure you are able to get the best deals from your suppliers while still adhering to company policy. The two must work together to keep the source-to-contract process flow working effectively.
Let’s take a deeper look at the strategic sourcing process, how it relates to compliance, and how you can use contract compliance to increase the efficiency of your vendor relationship management program.
What Is the Importance of Strategic Sourcing?
Strategic sourcing and contract compliance involve more than just selecting a supplier for a project. A standard process generally follows that includes evaluation, research, qualification, negotiation, and award:
- Consider different spend categories. Before even announcing a need, buyers should look at individual spend categories to ensure the exact details of the project. This also gives buyers an idea of how many suppliers are needed for contract sourcing.
- Perform market research. Buyers should also research risk and current markets thoroughly, particularly if you’re engaging new or global suppliers.
- Decide on a sourcing strategy. Every team’s sourcing strategy is different, however, your strategy and desired outcome must be thoroughly outlined before inviting suppliers.
- Begin sourcing and choose a supplier. This is often done by using request for proposals (RFPs) followed by request for quotes (RFQs)
- Award the contract. Award the contract to the best supplier(s) for the job.
Most organizations today use a strategic sourcing tool to automate this process so they can free up time and resources to focus on more critical issues within the business. Having the right source-to-contract software truly expedites the process and aids in strategic and contract sourcing. However, there are still important steps within procurement management, including ensuring that contract compliance is followed.
What Are Key Components of Contract Management?
Without proper governance, there is no guarantee of success, even if a supplier has the best product and service on the market. There is often one person or team in charge of contract management.
In general, there are certain steps that should be followed when sourcing or contract sourcing Contract managers typically:
- Draft contracts
- Negotiate deliverables
- Develop conditions and terms
- Set deadlines
- Work on renewal clauses
- Approve contracts
Compliance is also exceedingly important as a part of contract management. But, what does this really mean when it comes to the strategic sourcing process and selecting suppliers?
The Importance of Contract Compliance
Compliance has a tie-in with procurement ethics, but procurement compliance also involves ensuring all processes for spend management are being followed and that maverick spend is avoided. Every company has its own set of standards when it comes to compliance. Finding suppliers that adhere to yours is a must. It’s wise to find higher quality vendors that meet compliance standards that are easier to identify and source from reputable vendors. Some things to keep in mind with compliance:
- Rank your compliance priorities and research compliance solutions. Knowing exactly where you stand with compliance standards in contract sourcing is paramount.
- Source from pre-approved vendors. This prevents the risk of counterfeit or non-compliant materials.
- Monitor supply chains. Make sure they comply with applicable regulatory requirements. Audits and inspections are a part of this as well.
Regarding compliance, it’s important to understand how contract sourcing fits into the bigger picture, whether you’re running an eAuction, sourcing in the supply chain, sourcing strategically, or tactically. Using the proper sourcing software for your needs is more efficient and offers cost savings while also making the process more streamlined and transparent.
To learn more about intuitive, easy-to-use source-to-contract software for contract sourcing, speak to a Simfoni representative today about conducting a demo.